State Farm Stops Writing Policies in Mississippi

According to an article at MSNBC, State Farm will stop writing homeowner or commercial policies in Mississippi as it fights ongoing claims litigation as a result of Hurricane Katrina. State Farm cites the increased risk caused by the political and legal environment in Mississippi. While no existing policies are affected, State Farm is not ruling out that current policies may not be renewed.

State Farm's legal battles in Mississippi have not gone well. In fact, it has been subject to a punitive award of $1 million in one lawsuit. The judge in the case said that State Farm had operated in a "grossly negligent way". In response to the results of the lawsuit, Robert Hartwig, from the industry-funded Insurance Information Institute, was quoted as saying that there is a "virtually impossible working environment for insurers".

At issue in the Mississippi litigations is whether homeowners policies cover damage from a combination of wind and water, or from "storm surge". State Farm says no. In the face of denied claims, hundreds of policyholders have sued the company, saying that hurricane coverage should include all effects of the hurricane. The courts are siding with homeowners; State Farm has just lost an intial case that could set a precedent for even more claims to be reopened and paid.

Despite Katrina and high hurricane payouts, State Farm has been making hefty profits. State Farm's net profit for 2005 was $3.24 billion. (That's "billion".) Even with a healthy bottom line, insurers have been using the 2005 hurricane season as an excuse to both raise rates and stop writing insurance in many areas. One recent example was Hartford Insurance which has just canceled 38,000 policies in hurricane-prone Florida. Now State Farm is ceasing to write new business in Mississippi. This is a significant development as State Farm has been the largest homeowners insurer in Mississippi with over 30 percent of the market in the state.

Americans for Insurance Reform blasted the insurance industry's response to Katrina in general.  Their report suggests that insurers have been callous and unfair in their treatment of policyholders. The current trend to cancelling policies and ceasing to write new business is likely to reinforce this negative view of insurers.

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Monique L. Attinger
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